Waiting for the Interstate Ruling; Federal Court's Decision on Constitutionality of Regional Zones Could Come This Week; Major Implications for New England, Southeast
Fraust, Bart, American Banker
NEW YORK -- A judicial decision was widely expected late last month regarding the constitutionality of state laws that allow interstate banking but only within a particular region. That ruling never materialized.
The court -- the U.S. Court of Appeals for the Second Circuit in New York -- is now in recess, but it will return today for one week, so the decision could come soon.
Specifically, the court case concerns lawsuits filed by Citicorp and Northeast Bancorp Inc. of New haven, Conn., challenging recent Federal Reserve Board decisions allowing two mergers involving Connecticut and Massachusetts bank holding companies -- Bank of New England Co. of Boston with CBT Corp. of Hartford, Conn., and Hartford National Corp. with Arltru Bancorp Inc. of Lawrence, Mass.
Also left in limbo is the acquisition of Colonial Bancorp Inc. of Waterbury, Conn., by Bank of Boston Corp. The Federal Reserve Board placed a stay on that merger pending a ruling by the appeals court.
There are national implications as well. Since the suits were filed, a regional interstate banking zone has been formed in the Southeast. In July, Trust Company of Georgia and Sun Banks Inc. of Florida signed the first merger agreement under the southeastern plan.
Southeastern banking observers say a number of other deals are in the works, with some of the banks awaiting the federal court decision on regional interstate banking zones.
Federal legislation authorizing regional interstate banking zones has been approved by the Senate Banking Committee.
Citicorp and Northeast maintain that regional interstate banking compacts violate the commerce clause of the U.S. Constitution and represent an illegal compact among states.
Proponents of regional zones respond that the Douglas Amendment to the Bank Holding Company Act leaves it to the states to decide their own interstate banking laws. Fed Says No to Old Stone
Meanwhile, the Federal Reserve Board last month turned down an application by Old Stone Corp. of Providence, R.I., to buy First Federal Savings & Loan Association of Catawba County, Conover, N.C. In its decision, the Fed said that it is not agency policy to allow bank holding companies to acquire healthy thrifts across state lines. Old Stone earlier had acquired a failing North Carolina thrift, Perpetual Federal Savings & Loan Association in High Point.
However, one knowledgeable observer called Citicorp the "ghost at the banquet" in Old Stone's denial. The Fed feared that if it allowed Old Stone to buy a healthy out-of-state thrift, there would be precedent for Citicorp to buy healthy thrifts in the states where it owns savings and loan associations, the observer said. Citicorp has acquired failing thrifts in California, Florida, and Illinois. Old Stone, meanwhile, has appealed the Fed's decision.
In an interstate deal cut last month, AmeriTrust Corp. of Cleveland agreed to acquire Baldwin-United Corp.'s "silent" interest in Central Bancorp. of Colorado, Denver.
Baldwin owns 92% of Central Bancorp., but under an arrangement with the Federal Reserve Board it exercises no management control over the bank holding company, which is Colorado's fourth largest banking firm. AmeriTrust argues that since the acquisition does not involve control over Central, the acquisition is allowed under the Bank Holding Company Act. The deal must be approved by the Fed.
Meanwhile, shareholders of Sooner Federal Savings & Loan Association of Tulsa, Okla., approved a plan under which Sooner would be acquired by Home Savings of America, the Los Angeles thrift that is the nation's second largest savings and loan association.
The Sooner-Home deal is subject to approval from the Federal Home Loan Bank Board. Home does not currently operate in Oklahoma; nor does Sooner operate in California. However, the thrifts argue that the deal is permissible because both own savings and loan associations in Texas. …